Portugal ruling party's popularity hammered by taxes

LISBON/PORTO (Reuters) - The popularity of Portugal's ruling Social Democrats slumped to a record low on Thursday, prompting business leaders to call for a rethink on unpopular tax rises needed to meet the targets of an EU/IMF bailout.

The Social Democrats received 24 percent support, down from 36 percent in June and seven points behind the opposition Socialists, in the Diario de Noticias daily's opinion poll.

The rightist CDS party, part of the Social Democrats' ruling coalition, edged up to 7 percent from 6 percent.

The government plans to raise the social security levy in 2013 for all workers to 18 percent from 11 percent, potentially creating tensions with the smaller party which is traditionally opposed to higher taxes.

Following a late-night meeting on Thursday, the two parties issued a statement saying they remained committed to the coalition pact and the targets of the 78-billion euro ($101 billion) bailout.

They made no reference to the social security levy hike that triggered huge protests on Saturday. But they underlined "the importance of promoting social cohesion" and called the protests "a message that has to be accepted with responsibility and humility by all political and social players".

Portugal had managed to comply with the bailout conditions with relatively little opposition but mass protests have erupted since the September 7 announcement of a new round of austerity.

Many analysts and politicians say the government may have to come up with alternative solutions like more spending cuts. The opinion poll delivered gains to small leftist parties which oppose the austerity measures.

While the Socialists slipped to 31 percent from 33, the Communists' support rose to 13 percent from 9 in the last poll and the Left Bloc rose to 11 percent from 9.

SOCIAL COHESION

Speaking at a conference in Porto, Fernando Ulrich, chief executive of the country's third-largest private bank BPI, said the government-proposed levy hike was rational from an economic point of view, but would be worthless if it undermined social cohesion.

"It is obvious that it provoked a very strong social reaction and that's more important than the technical merits. The most important point for Portugal has been its social cohesion ... It is more important than the economic rationale."

Luis Reis, board member of retailer Sonae, Portugal's largest private sector employer, said he hoped the government would revise what he said was an "experimental measure", though he acknowledged additional austerity elements would be needed to reach the country's budget goals.

"We think that the global impact of the measures as they were announced by the government were not well-evaluated ...and it is certain that companies linked to domestic demand will be affected.

"We believe that the recent statement of readiness by the government to revise the levy can bear fruit," Reis said.

Portugal's economic crisis has been relatively contained but austerity measures have pushed the nation into its worst recession since the 1970s.

The government has said it is willing to "calibrate" the tax rise but said alternative austerity moves would also hurt consumption. Talks with employers and unions on the new austerity measures continue next week.

Nearly half of those surveyed in the poll, 48 percent, said they thought there was a high probability that Portugal would "live through a situation identical to Greece" in the next one to two years. That was up from 34 percent who thought that scenario was likely in the previous poll.

Greece's debt crisis has sent the country into recession for five years and sparked mass protests. Portugal has been in recession for two years but strikes and protests have been infrequent, although unemployment is at record high levels.

However, hundreds of thousands of Portuguese took to the streets to demonstrate against the tax hikes on Saturday in the biggest public protest since the country received its bailout last year.

The poll was conducted by pollsters at Lisbon's Catholic University on September 15-17. It surveyed 1,132 people and had a margin of error of 2.9 percentage points. ($1 = 0.7721 euros)

(Writing By Andrei Khalip, editing by Jane Merriman and Robert Woodward)